NorthStar Asset Management Group Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - NorthStar Asset Management Group Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT - NorthStar Asset Management Group Inc.	nsam093014ex311.htm
EX-31.2 - EXHIBIT - NorthStar Asset Management Group Inc.	nsam09302014ex312.htm
EX-32.2 - EXHIBIT - NorthStar Asset Management Group Inc.	nsam09302014ex322.htm
EX-32.1 - EXHIBIT - NorthStar Asset Management Group Inc.	nsam09302014ex321.htm
EX-10.19 - EXHIBIT - NorthStar Asset Management Group Inc.	exhibit1019b-formofjvllcag.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

Commission File Number: 001-36301

NORTHSTAR ASSET MANAGEMENT GROUP INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware	46-4591526
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)

399 Park Avenue, 18th Floor, New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2600

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer ý	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

The Company has one class of common stock, $0.01 par value per share, 188,634,329 shares outstanding as of November 6, 2014.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS



Index		Page
Part I.	Financial Information	5
Item 1.	Financial Statements	5
	Combined Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	5
	Combined Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2014 and 2013	6
	Combined Consolidated Statements of Equity for the nine months ended September 30, 2014 (unaudited) and year ended December 31, 2013	7
	Combined Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2014 and 2013	8
	Notes to Combined Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

Part II.	Other Information	40
Item 1.	Legal Proceedings	40
Item 5.	Other	41
Item 6.	Exhibits	43

Signatures		45

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the effects of the spin-off described in this Quarterly Report on Form 10-Q, our ability to grow our business, our financing needs, the effects of our current asset management strategy, our management’s track record, our ability to manage credit risk and the assets of our Managed Companies (as defined in Note 3), our ability to source additional investment opportunities for our Managed Companies and our ability to obtain new Managed Companies and additional assets to manage. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements. These factors include, but are not limited to:


•	risks inherent in a recently spun-off company, including those related to the capital resources required to protect against business risks, legal risks and risks associated with the tax and accounting treatment of a spin-off transaction;


•	risks associated with operating as an independent public company and loss of certain benefits associated with being owned as part of a larger company;


•	our ability to realize the anticipated benefits of the spin-off;


•	our ability to realize the anticipated effective income tax rate following the spin-off;


•	adverse economic conditions and the impact of the commercial real estate industry on our Managed Companies;


•	our ability to grow our business by raising capital for our Managed Companies;


•	our ability to effectively implement the business plans of, and the performance of, our Managed Companies;


•	our ability to enter into, and grow our business through, strategic investments and joint ventures, as well as the value of these investments and joint ventures;


•	our ability to close on the recent commitments to acquire interests in transactions on the terms contemplated or at all;


•	access to debt and equity capital and our liquidity;


•	our use of leverage;


•	changes in laws or regulations governing various aspects of our business and our Managed Companies;


•	the impact of any conflicts of interest arising from our asset management activities;


•	our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;


•	competition for qualified personnel and our ability to retain key personnel;


•	the competitive nature of the asset management industry;


•	the effectiveness of our portfolio management techniques and strategies;


•	our ability to expand our operations internationally;

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•	our failure to maintain our exclusion from the definition of an “investment company” under the Investment Company Act of 1940, as amended;


•	failure to maintain effective disclosure and internal controls as a stand alone company;


•	our historical financial information included in this Quarterly Report on Form 10-Q for periods prior to the third quarter 2014 not providing an accurate indication of our performance in the future or reflecting what our financial position, results of operations or cash flows would have been had we operated as an independent public company during the periods presented;


•	our status as an emerging growth company; and


•	the effect of regulatory actions, litigation and contractual claims against us, our affiliates or our Managed Companies, including the potential settlement and litigation of such claims.

The foregoing list of factors is not exhaustive. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in our filings with the United States Securities and Exchange Commission, or the SEC, of our Registration Statement on Form 10, as amended, under the heading “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

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PART I. Financial Information

Item 1. Financial Statements

NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)



	September 30, 2014 (Unaudited)			December 31, 2013
Assets
Cash	$	105,019		$	7,537
Restricted cash	3,132			—
Receivables, related parties	77,973			23,187
Investment in unconsolidated ventures	3,926			—
Other assets	12,065			985
Total assets	$	202,115		$	31,709
Liabilities
Accounts payable and accrued expenses	$	34,060		$	3,341
Total liabilities	34,060			3,341
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2014 and December 31, 2013	—			—
Common stock, $0.01 par value, 1,000,000,000 and 3,000 shares authorized, 188,634,329 and 1,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively	1,886			—
Additional paid-in capital	255,107			105,498
Retained earnings (accumulated deficit)	(88,938		)	(77,130		)
Total equity	168,055			28,368
Total liabilities and equity	$	202,115		$	31,709

Refer to accompanying notes to combined consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Share and Per Share Data)

(Unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
Revenues
Asset management and other fees, related parties⁽¹⁾	$	56,521		$	6,782	$	78,300		$	17,077
Selling commission and dealer manager fees, related parties	27,149			1,639		61,010			51,214
Other income	318			432		699			708
Total revenues	83,988			8,853		140,009			68,999
Expenses
Commission expense (refer to Note 3)	25,691			1,629		57,389			46,504
Transaction costs	—			—		24,476			—
Other expense	747			27		793			81
General and administrative expenses
Salaries and related expense	9,670			3,424		21,994			15,794
Equity-based compensation expense	16,541			1,006		30,286			4,513
Other general and administrative expenses	6,508			1,149		10,792			4,966
Total general and administrative expenses	32,719			5,579		63,072			25,273
Total expenses	59,157			7,235		145,730			71,858
Income (loss) before income taxes	24,831			1,618		(5,721		)	(2,859		)
Income tax (expense) benefit	(6,087		)	—		(6,087		)	—
Net income (loss)	$	18,744		$	1,618	$	(11,808	)	$	(2,859	)
Earnings per share:
Net income (loss) per Basic	$	0.10		$	0.01	$	(0.06	)	$	(0.02	)
Net income (loss) per Dilutive	$	0.10		$	0.01	$	(0.06	)	$	(0.02	)
Weighted average number of shares:
Basic	188,634,329			188,596,829		188,609,466			188,596,829
Dilutive	195,265,065			188,596,829		188,609,466			188,596,829
Dividends per share of common stock	$	0.10		$	—	$	0.10		$	—

______________________


(1)	The Company began earning fees on July 1, 2014, in connection with the management agreement with NorthStar Realty (refer to Note 1).

Refer to accompanying notes to combined consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)



	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Total Equity
	Shares	Amount		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Total Equity
Balance as of December 31, 2012	—	$	—	$	93,010	$	(75,135	)	$	17,875
NorthStar Realty contribution (refer to Note 1)	—	—		12,488		—			12,488
Net income (loss)	—	—		—		(1,995		)	(1,995		)
Balance as of December 31, 2013	—	—		105,498		(77,130		)	28,368
Amortization of equity-based compensation	—	—		13,745		—			13,745
Net effect of capital contribution of NorthStar Realty	188,597	1,886		119,323		—			121,209
Net income (loss)	—	—		—		(30,552		)	(30,552		)
Balance as of June 30, 2014 (unaudited) ⁽¹⁾	188,597	1,886		238,566		(107,682		)	132,770
Amortization of equity-based compensation	—	—		16,541		—			16,541
Issuance of restricted stock to directors	37	—		—		—			—
Net income (loss)	—	—		—		18,744			18,744
Balance as of September 30, 2014 (unaudited)	188,634	$	1,886	$	255,107	$	(88,938	)	$	168,055

______________________


(1)	Represents amounts at the date of the spin-off.

Refer to accompanying notes to combined consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	(11,808	)	$	(2,859	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of unconsolidated ventures	74			—
Accrued transaction costs	9,098			—
Depreciation expense	482			52
Amortization of equity-based compensation	30,286			4,513
Unrealized foreign currency (gain) loss	310			—
Straight line rent, net	15			—
Change in assets and liabilities:
Restricted cash	(3,132		)	—
Receivables, related parties	(54,786		)	(80		)
Other assets	(5,574		)	(5,372		)
Accounts payable and accrued expenses	20,430			(1,118		)
Net cash provided by (used in) operating activities	(14,605		)	(4,864		)
Cash flows from investing activities:
Investment in unconsolidated ventures	(4,000		)	—
Net cash provided by (used in) investing activities	(4,000		)	—
Cash flows from financing activities:
Contribution from NorthStar Realty (refer to Note 1)	116,397			6,875
Net cash provided by (used in) financing activities	116,397			6,875
Effect of foreign exchange rate changes on cash	(310		)	—
Net increase (decrease) in cash	97,482			2,011
Cash - beginning of period	7,537			6,643
Cash - end of period	$	105,019		$	8,654

Supplemental disclosure of non-cash investing and financing activities:
Deemed capital contribution from NorthStar Realty (refer to Note 1)	$	4,812		$	—

Refer to accompanying notes to combined consolidated financial statements.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Formation and Organization

On June 30, 2014, NorthStar Realty Finance Corp. (“NorthStar Realty”) completed the previously announced spin-off of its asset management business into a separate publicly-traded company, NorthStar Asset Management Group Inc. (“NSAM” or the “Company”), a Delaware corporation, in the form of a tax-free distribution (the “Distribution”). In connection with the Distribution, each of NorthStar Realty’s common stockholders received shares of the Company’s common stock on a one-for-one basis. Upon completion of the spin-off, the asset management business of NorthStar Realty is owned and operated by the Company and NorthStar Realty is externally managed by an affiliate of the Company through a management contract with an initial term of 20 years. NorthStar Realty continues to operate its commercial real estate debt origination business. Most of NorthStar Realty’s employees at the time of the spin-off became employees of the Company except for executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees that became co-employees of both the Company and NorthStar Realty.

An affiliate of the Company also manages NorthStar Realty’s previously sponsored non-traded real estate investment trusts (“REITs”): NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”); NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) and NorthStar Real Estate Income II, Inc. (“NorthStar Income II”) (collectively referred to as the “Sponsored Companies” and together with NorthStar Realty, collectively referred to as the “Managed Companies”). The Company is organized to provide asset management and other services to the Managed Companies or any other companies it may sponsor in the future, both in the United States and internationally. The Company earns management, incentive and other fees pursuant to management and other contracts. In addition, the Company owns NorthStar Realty Securities, LLC (“NorthStar Securities”), NorthStar Realty’s previously owned captive broker-dealer platform registered with the Securities and Exchange Commission (“SEC”) and performs other asset management-related services.

References to the historical asset management business of NorthStar Realty including assets, liabilities and results of operations relate to managing the Sponsored Companies, owning NorthStar Securities and operating its special servicing business and are generally referred to as those of the Company.

In connection with the Distribution, NorthStar Realty contributed 100% of the limited liability company interests in certain of NorthStar Realty’s subsidiaries and $100.0 million in cash for the initial capitalization, plus approximately $17.9 million in cash for any expenses that the Company incurred in connection with the spin-off. Any additional expenses incurred in connection with the spin-off will be paid by NorthStar Realty.


2.	Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying unaudited combined consolidated financial statements and related notes of the Company are presented on a carve-out basis for the period prior to June 30, 2014 and have been prepared from the historical consolidated balance sheets, statements of operations and cash flow attributed to the historical asset management business of NorthStar Realty and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Three months ended September 30, 2014 represent the Company subsequent to the spin-off as a stand alone entity. Certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Registration Statement on Form 10, as amended, which was filed with the SEC.

The consolidated financial statements for the three months ended September 30, 2014 represent the Company subsequent to the spin-off of NorthStar Realty’s historical asset management business of managing the Sponsored Companies, owning NorthStar Securities and operating its special servicing business. In connection with the spin-off, most of NorthStar Realty’s employees at the time of the spin-off became employees of the Company except for executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees that became co-employees of both the Company and NorthStar Realty. Therefore, subsequent to June 30, 2014, the Company generally incurs substantially all employee-related cash costs.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Periods prior to June 30, 2014 present a carve-out of NorthStar Realty’s historical financial information, including revenues and expenses allocated to the Company, related to NorthStar Realty’s historical asset management business. Expenses also included an allocation of indirect expenses from NorthStar Realty, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had NorthStar Realty’s historical asset management business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of NorthStar Realty’s operations. Additionally, periods prior to June 30, 2014 did not reflect the management agreement the Company entered into with NorthStar Realty effective July 1, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries.

Variable Interest Entities

A variable interest entity (“VIE”) is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

The Company evaluates the Managed Companies, investments in unconsolidated ventures and securitization financing transactions to which the Company is the special servicer to determine whether they are a VIE.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

Non-controlling, unconsolidated ownership interests in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of preferred returns and allocation formulas, if any, as described in such governing documents.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company records the change in fair value for its share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entities as a result of preferred returns and allocation formulas, if any, as described in such governing documents.

Estimates

The preparation of combined consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the combined consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Reclassifications

Certain prior period amounts have been reclassified in the combined consolidated financial statements to conform to current period presentation.

Other Assets

The following table presents a summary of other assets as of September 30, 2014 and December 31, 2013 (dollars in thousands):



	September 30, 2014 (Unaudited) ⁽¹⁾		December 31, 2013
	September 30, 2014 (Unaudited) ⁽¹⁾		December 31, 2013
Furniture, fixtures and equipment, net	$	5,047	$	295
Prepaid expenses	2,651		547
Pending deal costs	1,507		—
Security deposits	2,414		34
Other	446		109
Total	$	12,065	$	985

__________________


(1)	Represents fixed assets, tenant improvements and deposits related to leased offices that were transferred to the Company at the time of the spin-off on June 30, 2014.

Revenue Recognition

Asset Management and Other Fees

Asset management and other fees include asset management, incentive and other fees, such as acquisition and disposition fees, earned from the Managed Companies. Base asset management and other fees are recognized based on contractual terms specified in the underlying governing documents in the periods during which the related services are performed and the amounts have been contractually earned. Incentive fees and payments are recognized subject to the achievement of return hurdles in accordance with the respective terms set forth in the governing documents of the Managed Companies.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commission and dealer manager fees represents income earned by the Company for selling equity in the Sponsored Companies through NorthStar Securities. Selling commission and dealer manager fees and commission expense are accrued on a trade date basis.

Allowance for Doubtful Accounts

An allowance for a doubtful account is established when, in the opinion of the Company, a full recovery of a receivable becomes doubtful. A receivable is written off when it is no longer collectible and/or legally discharged. As of September 30, 2014 and December 31, 2013, there was no allowance for doubtful accounts.

Equity-Based Compensation

The Company accounts for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of fair value of the award at the time of grant. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, the Company recognizes compensation expense over the vesting period on a straight-line basis. For awards with performance or market measures, the Company recognizes compensation expense over the requisite service period, using the accelerated attribution expense method. For performance-based measures, the Company recognizes compensation expense, net of estimated forfeitures, based on an estimate of the probable achievement of such measures. For market-based measures, the Company recognizes compensation expense based on the initial estimate of the fair value of the award using a binomial model.

For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.

Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. The awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.

Foreign Currency Remeasurement

Assets and liabilities denominated in non-U.S. dollar currencies are remeasured at the exchange rate prevailing on the reporting date and revenues and expenses are remeasured at the average exchange rate for the period. The Company’s functional currency of its non-U.S. denominated assets and liabilities is the U.S. dollar. Therefore, any gains or losses from the remeasurement of foreign currency to U.S. dollars are recognized in earnings.

Comprehensive Income (Loss)

The Company had no items of other comprehensive income (loss), so its comprehensive loss is the same as the net loss for all periods presented.

Earnings Per Share

The Company’s basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted average number of common stock outstanding, including restricted stock and participating securities. Diluted EPS reflects the potential dilution that could occur if outstanding restricted stock units (“RSUs”) or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock, including Deferred LTIP Units (refer to Note 8), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and Deferred LTIP Units is calculated assuming all units are converted to common stock, if any.

Income Taxes

Certain subsidiaries of the Company were subject to taxation by federal, state and foreign authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws

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and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current year, plus the change in deferred taxes during the year.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. When it becomes effective on January 1, 2017, the accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. The Company is in the process of evaluating the impact, if any, of the update on its consolidated financial statements and related disclosures.


3.	Management Agreements and Managed Companies

NorthStar Realty

Management Agreement

Upon completion of the Distribution, the Company entered into a management agreement with NorthStar Realty for an initial term of 20 years, which will be automatically renewed for additional 20-year terms each anniversary thereafter unless earlier terminated. As asset manager, the Company is responsible for NorthStar Realty’s day-to-day operations, subject to the supervision of the NorthStar Realty board of directors. Through its global network of subsidiaries and branch offices, the Company performs services and activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to NorthStar Realty and its subsidiaries other than NorthStar Realty’s commercial real estate loan origination business. The management agreement with NorthStar Realty is for an initial term of 20 years and provides for a base management fee and incentive fee.

For the three months ended September 30, 2014, the Company earned $38.0 million of base management fees. The management contract with NorthStar Realty commenced on July 1, 2014, and as such, there were no management fees earned for the six months ended June 30, 2014. The fee will increase subsequent to September 30, 2014, by 1.5% per annum of the sum of:


•	cumulative net proceeds of all future common equity and preferred equity issued by NorthStar Realty;


•	equity issued by NorthStar Realty in exchange or conversion of exchangeable senior notes based on the stock price at the date of issuance;


•	any other issuances by NorthStar Realty of common equity, preferred equity or other forms of equity, including but not limited to LTIP units (excluding equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and


•	cumulative cash available for distribution (“CAD”) of NorthStar Realty in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the Distribution.

Additionally, NorthStar Realty’s equity interest in RXR Realty LLC (“RXR Realty”) and Aerium Group (“Aerium”) is structured so that the Company is entitled to the portion of distributable cash flow from each investment in excess of the $10.0 million minimum annual base amount.

For the three months ended September 30, 2014, the Company earned $1.3 million of incentive management fees. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:


•	the product of: (a) 15.0% and (b) CAD of NorthStar Realty before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.39 per share but less than $0.45 per share; plus


•	the product of: (a) 25.0% and (b) CAD of NorthStar Realty before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is equal to or in excess of $0.45 per share;


•	multiplied by the weighted average shares outstanding of NorthStar Realty for the calendar quarter.

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In addition, the Company may also earn an incentive fee from NorthStar Realty’s healthcare investments in connection with the Company’s Healthcare Strategic Partnership (refer to Note 5).

Weighted average shares represents the number of shares of NorthStar Realty’s common stock, LTIP units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all issuances shall be allocated on a daily weighted average basis during the fiscal quarter of issuances.

Furthermore, if NorthStar Realty were to spin-off any asset or business in the future, such entity would be managed by the Company on terms substantially similar to those set forth in the management agreement between the Company and NorthStar Realty. The management agreement further provides that the aggregate base management fee in place immediately after the spin-off will not be less than the aggregate base management fee in place at NorthStar Realty immediately prior to the spin-off.

Payment of Costs and Expenses and Expense Allocation

NorthStar Realty is responsible for all of its direct costs and expenses and will reimburse the Company for costs and expenses incurred by the Company on its behalf. In addition to NorthStar Realty’s costs and expenses, following the Distribution, NorthStar Realty is obligated to reimburse the Company for additional costs and expenses incurred by the Company for an amount not to exceed the following: (i) 20.0% of the combined total of: (a) NorthStar Realty’s general and administrative expenses as reported in its consolidated financial statements excluding: (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to the Company under the terms of the management agreement and (4) any allocation of expenses from NorthStar Realty (“NorthStar Realty G&A”); and (b) the Company’s general and administrative expenses as reported in its combined consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any of the Managed Companies, less (ii) the NorthStar Realty G&A. For the three months ended September 30, 2014, NorthStar Realty will pay $1.2 million to the Company.

Sponsored Companies

The following table presents a summary of the fee arrangements with the current Sponsored Companies:



	NorthStar	NorthStar	NorthStar
	Income	Healthcare	Income II
Asset management fees ⁽¹⁾	1.25% of Assets	1.00% of Assets	1.25% of Assets
Acquisition fees ⁽²⁾	1.00% of Investment	1.00% of Investment (2.25% for real estate properties)	1.00% of Investment
Disposition fees ⁽³⁾	1.0% of sales price	1.0% of sales price of debt investment (2.00% for real estate properties)	1.0% of sales price
Incentive payments ⁽⁴⁾	15% of net cash flows after an 8% return	15% of net cash flows after a 6.75% return⁽⁵⁾	15% of net cash flows after a 7% return

__________________


(1)	Assets represent principal amount funded or allocated for debt investments originated or acquired and the cost of all other investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or the Company’s proportionate share thereof in the case of an investment made in a joint venture).


(2)	Calculated based on the amount funded or allocated by the Sponsored Company to originate or acquire investments, including acquisition expenses and any financing attributable to such investments (or the proportionate share thereof in the case of an equity investment made through a joint venture).


(3)	Calculated based on contractual sales price of each investment sold.

(4)

The Company is entitled to receive distributions equal to 15% of net cash flows of the respective Sponsored Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus the respective cumulative, non-compounded annual pre-tax return (as noted in the table above) on such invested capital.


(5)	The Healthcare Strategic Partnership will be entitled to the incentive fees earned from managing NorthStar Healthcare, of which the Company will earn its proportionate interest (refer to Note 5).

For the three months ended September 30, 2014 and 2013, the Company earned $17.2 million and $6.8 million, respectively, of asset management and other fees from the Sponsored Companies. For the nine months ended September 30, 2014 and 2013, the Company earned $38.9 million and $17.1 million, respectively, of asset management and other fees from the Sponsored Companies.

NorthStar Realty committed to invest up to $10.0 million in each of the Sponsored Companies that are in their offering stage. In addition, NorthStar Realty will commit up to $10.0 million of distribution support consistent with its past practice in any future non-traded sponsored company that the Company sponsors, up to a total of five new companies per year.

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NorthStar Income successfully completed its public offering on July 1, 2013 by raising $1.1 billion in capital. NorthStar Healthcare and NorthStar Income II commenced capital raising in 2013. NorthStar Securities has dealer-manager agreements with NorthStar Healthcare and NorthStar Income II.

On March 31, 2014, NorthStar/RXR New York Metro Income, Inc., (“NorthStar/RXR New York Metro”), confidentially submitted its registration statement on Form S-11 to the SEC seeking to raise up to $2.0 billion in a public offering of common stock. NorthStar/RXR New York Metro will be structured as a public, non-traded corporation that intends to qualify as a REIT and is co-sponsored by the Company and RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate investments in the New York Tri-State area. Any asset management and other fees incurred by NorthStar/RXR New York Metro will be shared by the Company and RXR Realty as co-sponsors. NorthStar/RXR New York Metro intends to make commercial real estate investments in the New York metropolitan area. The distribution support agreement related to NorthStar/RXR New York Metro is an obligation of both NorthStar Realty and RXR Realty, to purchase up to an aggregate of $10.0 million in Class A common stock during the two-year period following commencement of the offering, with NorthStar Realty and RXR Realty agreeing to purchase 75% and 25% of any shares purchased, respectively.

Pursuant to each of the advisory agreements with the Company’s current Sponsored Companies, the Company may determine, in its sole discretion, to defer or waive, in whole or in part, certain asset management and other fees incurred. In considering whether to defer or waive any such fees, the Company evaluates the specific facts and circumstances surrounding the incurrence of a particular fee and makes its decision on a case by case basis.

In addition, the Company is entitled to certain expense allocations for costs paid on behalf of its Sponsored Companies which include: (i) reimbursement for organization and offering costs such as professional fees and other costs associated with the formation and offering of the Sponsored Company; and (ii) reimbursement for direct and indirect operating costs such as certain salaries, equity-based compensation and professional and other costs associated with managing the operations of the Sponsored Company. The following table presents a summary of the expense arrangements with the current Sponsored Companies:



	NorthStar Income	NorthStar Healthcare	NorthStar Income II
Organization and offering costs ⁽¹⁾	$11.0 million ⁽²⁾	$15.0 million, or 1.5% of the proceeds expected to be raised from the offering⁽⁴⁾	$24.8 million, or 1.5% of the proceeds expected to be raised from the offering
Operating costs ⁽³⁾	Greater of 2.0% of its average invested assets or 25.0% of its net income	Greater of 2.0% of its average invested assets or 25.0% of its net income	Greater of 2.0% of its average invested assets or 25.0% of its net income

__________________

(1)

Represents reimbursement for organization and offering costs paid on behalf of the Sponsored Company in connection with their respective offering. The Company is facilitating the payment of organization and offering costs on behalf of the Sponsored Companies. The Company records these costs as Receivables, related parties on its consolidated balance sheets until repaid. The Sponsored Companies record these costs as either advisory fees-related parties on their consolidated statements of operations or as a cost of capital in their consolidated statements of equity.


(2)	Represents the total expense allocation for organization and offering costs through the end of the offering period in July 2013.


(3)	Calculated based on the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of each Sponsored Company’s average invested assets; or (ii) 25.0% of each Sponsored Company’s net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period.

(4)

In October 2014, NorthStar Healthcare filed a registration statement on Form S-11 to the SEC seeking to register a follow-on public offering of up to $700 million in shares through 2016. This would increase the reimbursement for organization and offering costs paid on behalf of NorthStar Healthcare by $7.5 million. The registration statement for the follow-on offering has not yet been declared effective by the SEC.

As of September 30, 2014 and December 31, 2013, the Company had unreimbursed costs from the Sponsored Companies of $24.1 million and $23.2 million, respectively, recorded as receivables, related parties on the combined consolidated balance sheets. For the nine months ended September 30, 2014, the Company received $16.1 million of reimbursement from the Sponsored Companies.

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The following table presents receivables, related parties on the consolidated balance sheets as of September 30, 2014 and December 31, 2013 (dollars in thousands):



	September 30, 2014 (Unaudited)			December 31, 2013
NorthStar Realty
Base management fee	$	38,047		$	—
Incentive fee	1,316			—
Expense allocation	1,155			—
Subtotal NorthStar Realty	40,518			—
Sponsored Companies
Fees	15,687			2,252
Other receivables	21,634			20,894
Subtotal Sponsored Companies	37,321			23,146
Other	134			41
Total	$	77,973	⁽¹⁾	$	23,187

________________________

(1) Subsequent to September 30, 2014, the Company received $39.4 million from NorthStar Realty and $15.7 million from the Sponsored Companies.

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commissions and dealer manager fees represents income earned by selling equity in Sponsored Companies through NorthStar Securities. Pursuant to dealer manager agreements between NorthStar Securities and the Sponsored Companies, the Company generally receives selling commissions of up to 7.0% of gross offering proceeds raised. The Company reallows all selling commissions earned to participating broker-dealers. In addition, the Company also generally receives a dealer manager fee of up to 3.0% of gross offering proceeds raised, a portion of which may be reallowed to participating broker-dealers. The Company earns net commission income through NorthStar Securities for selling equity in the Sponsored Companies, which is expected to cover the costs of the broker-dealer business. Commission expense represents fees to participating broker-dealers with whom the Company has selling agreements and commissions to employees of NorthStar Securities.

The following table summarizes selling commission and dealer manager fees, commission expense and net commission income for the three and nine months ended September 30, 2014 and 2013 (dollar in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Selling commission and dealer manager fees	$	27,149	$	1,639	$	61,010	$	51,214
Commission expense	25,691		1,629		57,389		46,504
Net commission income⁽¹⁾	$	1,458	$	10	$	3,621	$	4,710

________________________

(1) Excludes direct expenses of NorthStar Securities.

Other

A subsidiary of the Company is a rated special servicer by Standard & Poor’s and Fitch Ratings and receives special servicing fees for services related to certain securitization transactions.


4.	Investments in Unconsolidated Ventures

Fund Alliance

In June 2014, the Company acquired a 50.0% interest in Distribution Finance Corporation, a crowd funding technology platform company, for $4.0 million. The Company accounts for this investment under the equity method. In addition to earning a proportionate share of net income, the Company will also earn a net 0.50% fee on any syndicated investments, a minimum base management fee of 1.0% and an incentive fee of 15.0% on contractually defined excess cash flows. As of September 30, 2014, the carrying value of the investment was $3.9 million. For the three and nine months ended September 30, 2014, the Company recognized equity in losses of $0.1 million related to recurring legal fees incurred by Distribution Finance Corporation. The Company records equity in losses in other income on the combined consolidated statement of operations.

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5.	Related Party Arrangements

NorthStar Realty

Investment Opportunities

Under the management agreement, NorthStar Realty agreed to make available to the Company for the benefit of the Managed Companies, including NorthStar Realty, all investment opportunities sourced by NorthStar Realty. The Company agreed to fairly allocate such opportunities among the Managed Companies, including NorthStar Realty, in accordance with an investment allocation policy. Pursuant to the management agreement, NorthStar Realty is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by it, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate.

The Company provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to NorthStar Realty as it relates to its loan origination business for commercial real estate debt.

Credit Agreement

In connection with the Distribution, the Company entered into a revolving credit agreement with NorthStar Realty pursuant to which NorthStar Realty will make available to the Company, on an “as available basis,” up to $250.0 million of financing for a five year term at LIBOR plus 3.50%. The revolving credit facility is unsecured. The Company expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, the Company may use the proceeds to acquire assets on behalf of the Managed Companies that it intends to allocate to such Managed Company but for which such Managed Company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that NorthStar Realty’s obligation to advance proceeds to the Company is dependent upon NorthStar Realty and its affiliates having at least $100.0 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount the Company seeks to draw under the facility. As of September 30, 2014, the Company had no borrowings outstanding under the credit agreement.

Healthcare Strategic Joint Venture

In January 2014, the Company entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc. focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees and seeks to grow both NorthStar Realty’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, NorthStar Realty granted Mr. Flaherty certain RSUs (refer to Note 7). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare. The partnership will also be entitled to any incentive fees earned from NorthStar Healthcare or any future healthcare non-traded REITs sponsored by the Company, NorthStar Realty or any affiliates. For the three and nine months ended September 30, 2014, the Company did not earn any incentive fees related to the Healthcare Strategic Partnership.


6.	Commitments and Contingencies

The Company may be involved in various litigation matters arising in the ordinary course of its business. Although management is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.


7.	Equity-Based Compensation

Impact of the Spin-off

NorthStar Realty has issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the “NorthStar Realty Stock Plan”) and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “NorthStar Realty Plan” and collectively the “NorthStar Realty Equity

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Plans”). In addition, the Company issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Asset Management Group Inc. 2014 Omnibus Stock Incentive Plan (the “NSAM Stock Plan”).

All of the vested and unvested equity-based awards granted by NorthStar Realty prior to the spin-off remain outstanding following the spin-off. Holders of shares of NorthStar Realty’s common stock subject to outstanding equity awards, included LTIP units converted to common shares in connection with NorthStar Realty’s internal corporate reorganization, received an equal number of shares of the Company’s common stock in connection with the spin-off, all of which generally remain subject to the same vesting and other terms that applied prior to the spin-off. LTIP units that remain subject to vesting after the effect of the spin-off are herein referred to as restricted stock. Deferred LTIP Units are equity awards representing the right to receive either LTIP units in NorthStar Realty’s successor operating partnership or, if such LTIP units are not available upon settlement of the award, shares of NorthStar Realty common stock. Other equity and equity-based awards relating to NorthStar Realty’s common stock, such as RSUs and Deferred LTIP Units, were adjusted to also relate to an equal number of shares of the Company’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the spin-off. Vesting conditions for outstanding awards have been adjusted to reflect the impact of the Company in terms of employment for service based on awards and total stockholder return in terms of performance-based awards with respect to periods after the spin-off.

Following the spin-off, NorthStar Realty and the compensation committee of its board of directors (the “NorthStar Realty Compensation Committee”) continues to administer all awards issued under the NorthStar Realty Equity Plans but the Company will be obligated to issue shares of the Company’s common stock or other equity awards of its subsidiaries or make cash payments in lieu thereof or with respect to dividend or distribution equivalent obligations to the extent required by these awards under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of the Company’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability under the NorthStar Realty Equity Plans.

In connection with the spin-off, most of NorthStar Realty’s employees at the time of the spin-off became employees of the Company except for executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees that became co-employees of both the Company and NorthStar Realty.

The following summarizes the equity-based compensation plans and related expenses for the Company and NorthStar Realty.

NorthStar Asset Management Equity Plans

Omnibus Stock Incentive Plan

In March 2014, the NorthStar Realty Compensation Committee approved the NSAM Stock Plan, which was subsequently adopted by the Company’s board of directors and approved by its sole stockholder at the time. The NSAM Stock Plan was administered by the NorthStar Realty Compensation Committee prior to the spin-off and is administered by the Company’s compensation committee following the spin-off. The NSAM Stock Plan provides flexibility to use various equity-based and cash incentive awards as compensation tools to motivate the Company’s workforce.

In anticipation of the spin-off, on April 3, 2014, the Company granted an aggregate of 6,230,529 RSUs to its executive officers pursuant to the NSAM Stock Plan. The RSUs vest over four years and are subject to the achievement of performance-based vesting conditions and continued employment. 40% of these RSUs are subject to the achievement of performance-based hurdles relating to CAD and capital raising of the Sponsored Companies. 30% of these RSUs are subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return over a four-year period. The remaining 30% of these RSUs are subject to the achievement of performance-based hurdles based on the Company’s total stockholder return relative to the Russell 2000 Index over a four-year period. The fair value of the absolute and the relative value grants are being amortized into equity-based compensation expense over the performance period. In May 2014, the Company also granted an aggregate of 1,338,785 RSUs (net of forfeitures) with substantially similar terms to certain employees pursuant to the NSAM Stock Plan.

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(Unaudited)

The following table presents a summary of Deferred LTIP Units, whether vested or not, and unvested restricted stock from the time of the spin-off to September 30, 2014 (grants in thousands):



	Grants		Weighted Average Grant Price⁽³⁾
As of June 30, 2014, time of the spin-off	1,917		$	22.91
New grants⁽¹⁾	37		19.20
Vesting of restricted stock post-spin	(47	)	13.39
Forfeited grants	(1	)	23.80
Ending Balance/Weighted Average⁽²⁾	1,906		$	23.07

____________________________________________________________


(1)	Represents restricted common stock issued to the Company’s board of directors on July 1, 2014.


(2)	Includes 0.8 million shares of restricted stock and 1.1 million vested and unvested Deferred LTIP Units as of September 30, 2014.


(3)	Amounts have been retrospectively adjusted to reflect NorthStar Realty’s reverse split, which occurred prior to the spin-off on June 30, 2014.

Incentive Compensation Plan

In March 2014, the NorthStar Realty Compensation Committee approved the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (the “NSAM Bonus Plan” and collectively, with the NSAM Stock Plan, the “NSAM Plans”), which was subsequently adopted by the Company’s board of directors and approved by its sole stockholder. The NSAM Bonus Plan establishes the general parameters of the Company’s incentive bonus program for its executive officers. Pursuant to the NSAM Bonus Plan, for each plan year, the administrator will establish two bonus pools (an annual cash bonus pool and a long-term bonus pool), award a bonus pool percentage(s) to each participant with respect to such bonus pools and establish performance goals, vesting requirements and other terms and conditions applicable to such bonuses. The NSAM Bonus Plan was administered by the NorthStar Realty Compensation Committee prior to the spin-off and is administered by the Company’s compensation committee following the spin-off.

For 2014, the administrator established an annual cash bonus pool equal to 17% of the Company’s revenues, determined on a pro forma basis, giving effect to the spin-off as if it occurred on January 1, 2014. The actual amount of the 2014 annual cash bonuses will be determined based on the Company’s achievement of performance goals based on CAD of the Company and NorthStar Realty and capital raising of the Sponsored Companies. Pursuant to an employee matters agreement entered into in connection with the spin-off, NorthStar Realty agreed to make the cash portion of any incentive payment to the Company employees for services performed in 2014 through the date of the spin-off, as a result of which NorthStar Realty will be responsible for paying 50% of any 2014 annual cash bonuses earned under the NSAM Bonus Plan. The administrator established a long-term bonus pool for 2014 with respect to annual cash bonuses. For 2014, long-term bonuses will be paid in both Company and NorthStar Realty equity-based awards and subject to performance-based and/or time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. No awards have been granted under the NSAM Bonus Plan and accordingly, the Company has not recorded any equity-based compensation expense for the three and nine months ended September 30, 2014 related to the NSAM Bonus Plan.

NorthStar Realty Equity Plans

In connection with the spin-off, the Company issued the following related to the prior NorthStar Realty Stock Plans as of September 30, 2014: restricted common stock, of which 781,187 shares remain subject to vesting; 1,135,599 Deferred LTIP Units, of which 982,977 remain subject to vesting; and an aggregate of 1,968,111 RSUs to executive officers.

Healthcare Strategic Joint Venture

In connection with entering into the Healthcare Strategic Partnership, NorthStar Realty granted Mr. Flaherty 500,000 RSUs, which vest on January 22, 2019, unless certain conditions are met. In connection with the spin-off, the RSUs granted to Mr. Flaherty were adjusted to also relate to an equal number of shares of the Company’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company and NorthStar Realty or in cash at the option of the Company. Mr. Flaherty is also entitled to incremental grants of the Company’s common stock subject to certain conditions being met pursuant to a separate contractual arrangement entered into in connection with the Healthcare Strategic Partnership.

Summary

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(Unaudited)

Prior to the spin-off, NorthStar Realty allocated equity-based compensation expense related to managing the Sponsored Companies based on an estimate had the Company’s asset management business has been run as an independent entity. This allocation method was principally based on relative head count and management’s knowledge of NorthStar Realty’s operations. For the six months ended June 30, 2014, the Company was allocated $13.7 million of equity-based compensation expense related to the NorthStar Realty Equity Plans and the NSAM Stock Plan. For the three and nine months ended September 30, 2013, the Company was allocated $1.0 million and $4.5 million, respectively, of equity-based compensation expense related to the NSAM Stock Plan and the NorthStar Realty Equity Plans. For the three months ended September 30, 2014, the Company recognized $16.5 million of equity-based compensation expense related to the NSAM Stock Plan and the NorthStar Realty Equity Plans.


8.	Stockholders’ Equity

Distribution

In connection with the Distribution, NorthStar Realty distributed to its common stockholders all of the common stock of the Company in a pro rata distribution of one share of the Company common stock for each share of NorthStar Realty common stock.

Director Shares

In July 2014, the Company issued 37,500 shares of restricted common stock with a fair value at the date of grant of $0.7 million to its board of directors as part of their annual grants. The stock will generally vest over three years.

Performance Stock

The Company is currently authorized to issue 1,600,000,000 shares of capital stock, of which 500,000,000 is designated as performance common stock, par value $.01 per share.

Earnings Per Share

Basic and diluted earnings per share and the average number of common shares outstanding were calculated using the number of common stock outstanding immediately following the spin-off on June 30, 2014. The Company presents common stock issued in connection with the spin-off as if it had been outstanding for all periods presented, similar to a stock split. The following table presents EPS for the three and nine months ended September 30, 2014 and 2013 (dollars and shares in thousands, except per share data):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014			2013
Numerator:
Net income (loss)	$	18,744	$	1,618	$	(11,808	)	$	(2,859	)
Denominator:
Weighted average number of shares of common stock	188,634		188,597		188,609			188,597
Dilutive effect of RSUs ⁽¹⁾	4,996		—		—			—
Dilutive effect of the Deferred LTIP units	1,135		—		—			—
Dilutive effect of the Healthcare Strategic Partnership RSUs	500		—		—			—
Weighted average number of diluted shares⁽²⁾	195,265		188,597		188,609			188,597
Earnings (loss) per share:
Basic	$	0.10	$	0.01	$	(0.06	)	$	(0.02	)
Diluted	$	0.10	$	0.01	$	(0.06	)	$	(0.02	)

________________________


(1)	Represents 3.0 million shares related to the NSAM Stock Plan and 2.0 million shares related to the NorthStar Realty Stock Plan.


(2)	Dilutive EPS excludes the effect of equity-based awards issued that were not dilutive for the periods presented. These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.

9. Income Taxes

The Company operates internationally and domestically through multiple operating subsidiaries. Each of the jurisdictions in which the Company operates has its own tax law and tax rate, where the tax rate outside the United States may be lower than the U.S. federal statutory income tax rate. The Company’s income tax provision was $6.1 million for the three months ended September 30, 2014, representing an effective tax rate of approximately 20% on taxable income. The primary difference between taxable income and U.S. GAAP income relates to equity-based compensation expense. The Company’s effective tax

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

rate may change periodically due to changes in enacted tax rates and fluctuations in the mix of income earned from its domestic and international operations, among other things.


10.	Segment Reporting

The Company conducts its asset management business through the following five segments, which are based on how management reviews and manages its business:


•	NorthStar Realty - Segment is focused on providing asset management and other services on a fee basis by managing NorthStar Realty’s day-to-day operations. The Company began earning fees from NorthStar Realty on July 1, 2014.


•	Sponsored Companies - Segment is focused on providing asset management and other services on a fee basis by managing each Sponsored Company’s respective day-to-day operations.


•	Broker-dealer - Segment is focused on selling equity in the Sponsored Companies.


•	Other - Segment is focused on providing special servicing services on a fee basis in connection with certain securitization transactions.


•	Corporate - The corporate segment includes corporate level general and administrative expenses.

The consolidated financial statements for the three months ended September 30, 2014 represent the Company subsequent to the spin-off of NorthStar Realty’s historical asset management business of managing the Sponsored Companies, owning NorthStar Securities and operating its special servicing business. Periods prior to June 30, 2014 present a carve-out of NorthStar Realty’s historical financial information including revenues and expenses allocated to the Company, related to NorthStar Realty’s historical asset management business. Expenses also included an allocation of indirect expenses from NorthStar Realty, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other costs) based on an estimate had NorthStar Realty’s historical asset management business been run as an independent entity.

Periods prior to June 30, 2014 present a carve-out of NorthStar Realty’s historical financial information, including revenues and expenses allocated to us related to NorthStar Realty’s historical asset management business. Expenses also included an allocation of indirect expenses from NorthStar Realty, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had NorthStar Realty’s historical asset management business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of NorthStar Realty’s operations. Additionally, periods prior to June 30, 2014 did not reflect the management agreement the Company entered into with NorthStar Realty effective July 1, 2014.

The following tables present segment reporting for the three and nine months ended September 30, 2014 and 2013 (dollars in thousands):



Three months ended September 30, 2014	NorthStar Realty ⁽¹⁾		Sponsored Companies		Broker Dealer⁽²⁾			Other ⁽³⁾		Corporate			Total
Asset management and other fees, related parties	$	39,363	$	17,158	$	—		$	—	$	—		$	56,521
Selling commission and dealer manager fees, related parties	—		—		27,149			—		—			27,149
Commission expense	—		—		25,691			—		—			25,691
Salaries and related expense	—		—		1,693			—		7,977			9,670
Equity-based compensation expense	—		—		—			—		16,541			16,541
Other general and administrative expenses	—		—		1,999			—		4,509			6,508
Income tax benefit (expense)	—		—		—			—		(6,087		)	(6,087		)
Net income (loss)	39,363		11,788		(2,257		)	42		(30,192		)	18,744

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



Three months ended September 30, 2013	NorthStar Realty ⁽¹⁾		Sponsored Companies		Broker Dealer ⁽²⁾			Other ⁽³⁾		Corporate			Total
Asset management and other fees, related parties	$	—	$	6,782	$	—		$	—	$	—		$	6,782
Selling commission and dealer manager fees, related parties	—		—		1,639			—		—			1,639
Commission expense	—		—		1,629			—		—			1,629
Salaries and related expense	—		—		1,283			—		2,141			3,424
Equity-based compensation expense	—		—		—			—		1,006			1,006
Other general and administrative expenses	—		—		1,090			—		59			1,149
Net income (loss)	—		6,782		(5,549		)	403		(18		)	1,618

__________________


(1)	The Company began earning fees on July 1, 2014, in connection with the management agreement with NorthStar Realty (refer to Note 3).


(2)	Direct general and administrative expenses incurred by the broker dealer.


(3)	Primarily represents revenues and expenses related to special servicing.



Nine months ended September 30, 2014	NorthStar Realty ⁽¹⁾		Sponsored Companies		Broker Dealer ⁽²⁾			Other ⁽³⁾		Corporate			Total
Asset management and other fees, related parties	$	39,363	$	38,937	$	—		$	—	$	—		$	78,300
Selling commission and dealer manager fees, related parties	—		—		61,010			—		—			61,010
Commission expense	—		—		57,389			—		—			57,389
Salaries and related expense	—		—		5,053			—		16,941			21,994
Equity-based compensation expense	—		—		—			—		30,286			30,286
Other general and administrative expenses	—		—		6,081			—		4,711			10,792
Income tax benefit (expense)	—		—		—			—		(6,087		)	(6,087		)
Net income (loss)	39,363		33,567		(7,583		)	167		(77,322		)	(11,808		)



Nine months ended September 30, 2013	NorthStar Realty⁽¹⁾		Sponsored Companies		Broker Dealer⁽²⁾			Other⁽³⁾		Corporate			Total
Asset management and other fees, related parties	$	—	$	17,077	$	—		$	—	$	—		$	17,077
Selling commission and dealer manager fees, related parties	—		—		51,214			—		—			51,214
Commission expense	—		—		46,504			—		—			46,504
Salaries and related expense	—		—		4,365			—		11,429			15,794
Equity-based compensation expense	—		—		—			—		4,513			4,513
Other general and administrative expenses	—		—		4,497			—		469			4,966
Net income (loss)	—		17,077		(4,204		)	679		(16,411		)	(2,859		)

__________________


(1)	The Company began earning fees on July 1, 2014, in connection with the management agreement with NorthStar Realty (refer to Note 3).


(2)	Direct general and administrative expenses incurred by the broker dealer.


(3)	Primarily represents revenues and expenses related to special servicing.

The following table presents total assets by segment as of September 30, 2014 and December 31, 2013 (dollars in thousands):



Total Assets	NorthStar Realty⁽¹⁾		Sponsored Companies ⁽¹⁾		Broker Dealer		Other⁽²⁾		Corporate		Total
September 30, 2014	$	40,441	$	38,745	$	8,465	$	4,567	$	109,897	$	202,115
December 31, 2013	$	—	$	23,149	$	8,377	$	183	$	—	$	31,709

__________________


(1)	Primarily represents the receivable, related parties as of September 30, 2014 and December 31, 2013, respectively. Subsequent to September 30, 2014, the Company received $55.1 million of reimbursements from the Managed Companies.


(2)	Primarily represents assets related to special servicing and the investment in crowd funding.

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NORTHSTAR ASSET MANAGEMENT GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


11.	Subsequent Events

Dividends

On October 30, 2014, the Company declared a dividend of $0.10 per share of common stock. The common stock dividend will be paid on November 14, 2014 to stockholders of record as of the close of business on November 10, 2014.

American Healthcare Investors LLC

On November 7, 2014, the Company entered into an agreement to acquire an approximate 47% ownership interest in the business of American Healthcare Investors LLC (“AHI”), for upfront cash and stock consideration of $57.5 million, consisting of $37.5 million of cash and $20 million of the Company’s common stock, subject to certain lock-up and vesting restrictions. Refer to Part II, Item 5. “Other” for further discussion. There can be no assurance that the Company will complete the transaction described above on the terms contemplated or at all.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited combined consolidated financial statements and notes thereto included in Item 1. “Financial Statements” of this report. References to “NSAM,” “we,” “us” or “our” refer to NorthStar Asset Management Group Inc. and its subsidiaries unless the context specifically requires otherwise.

Introduction

On June 30, 2014, NorthStar Realty Finance Corp. (NYSE: NRF), or NorthStar Realty, completed its previously announced spin-off of its asset management business into a separate publicly-traded company, NorthStar Asset Management Group Inc. (NYSE: NSAM), a Delaware corporation, in the form of a tax-free distribution, or the Distribution. In connection with the Distribution, each of NorthStar Realty’s common stockholders received shares of our common stock on a one-for-one basis. Upon completion of the spin-off, the asset management business of NorthStar Realty is owned and operated by us and NorthStar Realty is externally managed by our affiliate through a management contract with an initial term of 20 years. NorthStar Realty continues to operate its commercial real estate debt origination business. Most of NorthStar Realty’s employees at the time of the spin-off became our employees except for executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees that became co-employees of both us and NorthStar Realty.

Our affiliate also manages NorthStar Realty’s previously sponsored non-traded real estate investment trusts, or REITs: NorthStar Real Estate Income Trust, Inc., or NorthStar Income; NorthStar Healthcare Income, Inc., or NorthStar Healthcare; and NorthStar Real Estate Income II, Inc., or NorthStar Income II, collectively referred to as the Sponsored Companies and together with NorthStar Realty, collectively referred to as the Managed Companies. We are organized to provide asset management and other services to the Managed Companies or any other companies we may sponsor in the future, both in the United States and internationally. We earn management, incentive and other fees pursuant to management and other contracts. In addition, we own NorthStar Realty Securities, LLC, or NorthStar Securities, NorthStar Realty’s previously owned captive broker-dealer platform registered with the Securities and Exchange Commission, or SEC, and perform other asset management-related services. As of November 7, 2014, we had $19.4 billion of assets under management.

Summary of Business

Our primary business lines are as follows:


•	NorthStar Realty - Focused on providing asset management and other services on a fee basis by managing NorthStar Realty’s day-to-day operations. We began earning fees from NorthStar Realty on July 1, 2014.


•	Sponsored Companies - Focused on providing asset management and other services on a fee basis by managing each Sponsored Company’s respective day-to-day operations.


•	Broker-dealer - Focused on selling equity in our Sponsored Companies.


•	Other - Focused on providing special servicing services on a fee basis in connection with certain securitization transactions.

Our Business

Our primary business objective is to provide asset management and other services by managing NorthStar Realty and our Sponsored Companies, both in the United States and internationally. We earn asset management, incentive and other fees pursuant to management and other contracts. Our growth will be aligned with the ability of NorthStar Realty and our Sponsored Companies to grow by raising capital, which in turn will be driven by their investment activities and overall performance. We expect to expand our asset management business through organic growth by managing additional investment vehicles and potentially through the acquisition of third-party asset management contracts and businesses. Recently, we entered into a strategic arrangement to acquire an interest in investment management platform. Refer to the Recent Developments section below for further discussion. Additionally, in connection with our international strategy, NorthStar Realty entered into a strategic alliance with a European asset manager and has opened offices and is hiring investment professionals overseas.

Our Managed Companies have historically invested in the commercial real estate industry and have demonstrated the ability to invest and create value through multiple real estate cycles and changing market conditions. The term commercial real estate industry refers to all commercial property types, both in the United States and internationally, including but not limited to healthcare, hotel, manufactured housing communities, net lease and multifamily properties. Our management team has a proven track record in managing and growing NorthStar Realty and our Sponsored Companies. We believe our in-place, long-duration fees, substantial growth prospects and scalable operating platform, position us as an industry leading asset manager.

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We have the ability to maintain a competitive advantage through a combination of our deep industry relationships and access to market leading commercial real estate credit underwriting and capital markets expertise which enables us to manage credit risk as well as to structure and finance the assets of our Managed Companies efficiently. In connection with the spin-off, most of the existing employees of NorthStar Realty became our employees. Executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees are co-employees of us and NorthStar Realty. Our ability to identify opportunities across a broad spectrum of potential investments for our Managed Companies will continue to create complementary and overlapping sources of investment opportunities based on a common reliance on market fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value.

Assets of our Managed Companies grew significantly over the past several years driven by our ability to raise capital for NorthStar Realty and our Sponsored Companies and in turn effectively deploy such capital. The following table presents the assets of our Managed Companies as of September 30, 2014, adjusted for the Griffin-American merger (refer below) and acquisitions and agreements to purchase through November 7, 2014 and December 31, 2013 (dollars in thousands):



	September 30, 2014				December 31, 2013
	Amount		Percentage		Amount		Percentage
NorthStar Realty⁽¹⁾	$	16,373,422	84.40	%	$	8,660,375	81.50	%
Sponsored Companies:⁽²⁾
NorthStar Income	2,069,717		10.70	%	1,831,104		17.20	%
NorthStar Healthcare	542,242		2.80	%	115,839		1.10	%
NorthStar Income II	398,410		2.10	%	25,326		0.20	%
Direct investments	3,926		—	%	—		—	%
Total	$	19,387,717	100.0	%	$	10,632,644	100.0	%

__________


(1)	Based on total assets reported by NorthStar Realty, excluding a joint venture interest in a healthcare portfolio with NorthStar Healthcare.


(2)	Based on total assets as reported on the consolidated balance sheets of our respective Sponsored Companies.

On August 5, 2014, NorthStar Realty and Griffin-American Healthcare REIT II, Inc., or Griffin-American, announced that the board of directors of both NorthStar Realty and Griffin-American unanimously approved a definitive merger agreement under which NorthStar Realty will acquire all of the outstanding shares of Griffin-American in a stock and cash transaction valued at $4 billion. Griffin-American is a non-traded REIT focused on medical office buildings, senior housing and other healthcare-related facilities and is co-sponsored by American Healthcare Investors and Griffin Capital Corporation. Additionally, in October 2014, NorthStar Healthcare entered into a purchase and sale agreement with NorthStar Realty pursuant to which it agreed to acquire an 8.3% equity interest in the Griffin-American healthcare real estate portfolio in connection with the merger for $100 million in cash.

We made investments on behalf of our Managed Companies, including NorthStar Realty, prior to the spin-off. The following table presents gross investment activity related to the Managed Companies as of September 30, 2014 (dollars in millions):



NorthStar Realty⁽¹⁾	$	16,373
Sponsored Companies:
NorthStar Income	2,056
NorthStar Healthcare	491
NorthStar Income II	372
Subtotal Sponsored Companies	2,919
Total	$	19,292

__________


(1)	Excludes a joint venture interest in a healthcare portfolio with NorthStar Healthcare and adjusted for the Griffin-American merger and acquisitions and agreements to purchase real estate through November 7, 2014.

NorthStar Realty

NorthStar Realty has grown its business by raising capital and deploying such capital effectively. To date in 2014, NorthStar Realty has issued aggregate net capital of $1.1 billion, including $882 million from the issuance of common equity and $242 million from the issuance of preferred equity. In addition, 24.7 million shares remain available under the forward sale agreement representing aggregate net proceeds of $432 million. Further, NorthStar Realty expects to issue $1.1 billion of common equity related to the Griffin-American acquisition. In 2013, NorthStar Realty issued aggregate net capital of $1.9 billion, including $1.4 billion from the issuance of common equity, $193 million from the issuance of preferred stock and $335 million from the issuance of exchangeable senior notes.

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The management agreement with NorthStar Realty is for an initial term of 20 years and provides for a base management fee and incentive fee.

Base Management Fee:

For the three months ended September 30, 2014, we earned $38.0 million of base management fees. The management contract with NorthStar Realty commenced on July 1, 2014, and as such, there were no management fees earned for the six months ended June 30, 2014. The fee will increase subsequent to September 30, 2014, by 1.5% per annum of the sum of:


•	cumulative net proceeds of all future common equity and preferred equity issued by NorthStar Realty;


•	equity issued by NorthStar Realty in exchange or conversion of exchangeable senior notes based on the stock price at the date of issuance;


•	any other issuances by NorthStar Realty of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interest in an operating partnership, or LTIP units, (excluding equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and


•	cumulative cash available for distribution, or CAD, of NorthStar Realty in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after completion of the spin-off.

Additionally, NorthStar Realty’s equity interest in RXR Realty LLC, or RXR Realty, and Aerium Group, or Aerium, is structured so that we are entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee:

For the three months ended September 30, 2014, we earned $1.3 million of incentive management fees. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:


•	the product of: (a) 15% and (b) CAD of NorthStar Realty before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is in excess of $0.39 per share but less than $0.45 per share; plus


•	the product of: (a) 25% and (b) CAD of NorthStar Realty before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, when such amount is equal to or in excess of $0.45 per share;


•	multiplied by the weighted average shares outstanding of NorthStar Realty for the calendar quarter.

In addition, we may also earn an incentive fee from the Healthcare Strategic Partnership (refer to below).

Additional NorthStar Realty Management Agreement Terms:


•	20-year initial term of management agreement, which will be automatically renewed for additional 20-year terms each anniversary thereafter unless earlier terminated for “cause.”

•

If NorthStar Realty were to spin-off any asset or business in the future, such entity would be managed by us on terms substantially similar to those set forth in the management agreement between us and NorthStar Realty. The management agreement further provides that the aggregate base management fee in place immediately after the spin-off will not be less than the aggregate base management fee in place at NorthStar Realty immediately prior to the spin-off.

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Payment of Costs and Expenses and Expense Allocation

NorthStar Realty is responsible for all of its direct costs and expenses and will reimburse us for costs and expenses incurred by us on its behalf. In addition to NorthStar Realty’s costs and expenses, following the Distribution, NorthStar Realty is obligated to reimburse us for additional costs and expenses incurred by us for an amount not to exceed the following: (i) 20.0% of the combined total of: (a) NorthStar Realty’s general and administrative expenses as reported in its consolidated financial statements excluding: (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to us under the terms of the management agreement and (4) any allocation of expenses from NorthStar Realty (“NorthStar Realty G&A”); and (b) our general and administrative expenses as reported in its combined consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any of our Managed Companies, less (ii) the NorthStar Realty G&A. For the three months ended September 30, 2014, NorthStar Realty will pay us $1.2 million.

Sponsored Companies

We have been focusing on raising capital for our Sponsored Companies through NorthStar Securities. Our first commercial real estate debt-oriented non-traded REIT, NorthStar Income, successfully completed its public offering on July 1, 2013 by raising $1.1 billion in capital. We are currently raising capital for our second Sponsored Company, NorthStar Healthcare, a healthcare equity and debt focused non-traded REIT, which currently has a maximum offering amount of $1.1 billion, and for our third Sponsored Company, NorthStar Income II, our second commercial real estate debt-oriented non-traded REIT, which has a maximum offering amount of $1.65 billion. NorthStar Healthcare and NorthStar Income II picked up momentum in raising capital in 2013, following the execution of a number of selling agreements in June 2013 and October 2013, respectively.

The following table presents a summary of the fee arrangements with our current Sponsored Companies:



	NorthStar	NorthStar	NorthStar
	Income	Healthcare	Income II
Offering amount⁽¹⁾	$1.1 billion	$1.8 billion⁽⁶⁾	$1.65 billion
Total raised through October 2014	$1.2 billion	$635 million	$238 million
Primary strategy	Commercial Real Estate Debt	Healthcare Equity and Debt	Commercial Real Estate Debt
Primary offering period	Completed July 2013	Ends August 2015⁽⁶⁾	Ends May 2015
Asset Management and Other Fees:
Asset management fees⁽²⁾	1.25% of Assets	1.00% of Assets	1.25% of Assets
Acquisition fees⁽³⁾	1.00% of Investment	1.00% of Investment (2.25% for real estate properties)	1.00% of Investment
Disposition fees⁽⁴⁾	1.0% of sales price	1.0% of sales price for debt investments (2.00% for real estate properties)	1.0% of sales price
Incentive payments⁽⁵⁾	15% of net cash flows after an 8% return	15% of net cash flows after a 6.75% return⁽⁷⁾	15% of net cash flows after a 7% return

__________________


(1)	Represents amount of shares initially registered to offer pursuant to each Sponsored Company’s public offering.


(2)	Assets represent principal amount funded or allocated for debt investments originated or acquired and the cost of all other investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or our proportionate share thereof in the case of an investment made in a joint venture).


(3)	Calculated based on the amount funded or allocated by our Sponsored Companies to originate or acquire investments, including acquisition expenses and any financing attributable to such investments (or the proportionate share thereof in the case of an equity investment made through a joint venture).


(4)	Calculated based on contractual sales price of each investment sold.

(5)

We are entitled to receive distributions equal to 15% of net cash flows of the respective Sponsored Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus the respective cumulative, non-compounded annual pre-tax return (as noted in the table above) on such invested capital.

(6)

In October 2014, NorthStar Healthcare filed a registration statement on Form S-11 with the SEC seeking to register a follow-on public offering of up to $700 million through 2016. The registration statement for the follow-on offering has not yet been declared effective by the SEC. The $1.8 billion offering size represents the current maximum offering amount of $1.1 billion offering plus the proposed follow-on maximum offering amount of up to $700 million.


(7)	The Healthcare Strategic Partnership will be entitled to the incentive fees earned from managing NorthStar Healthcare, of which we will earn our proportionate interest.

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The following table presents a summary of our current Sponsored Companies and their capital raising activity for the nine months ended September 30, 2014, year ended December 31, 2013 and from inception through October 31, 2014:



				Capital Raised (in thousands)
	Primary Strategy	Offering Amount	Offering Period	Nine Months Ended September 30, 2014		Year Ended December 31, 2013		From inception through October 31, 2014
NorthStar Income	Commercial Real Estate Debt	$1.1 billion	Completed July 2013	$	31,802	$	545,423	$	1,180,854
NorthStar Healthcare	Healthcare Equity and Debt	$1.8 billion⁽²⁾	Ends August 2015⁽²⁾	443,095		109,043		634,718
NorthStar Income II	Commercial Real Estate Debt	$1.65 billion	Ends May 2015⁽³⁾	184,312		27,653		237,864
NorthStar/RXR New York Metro	New York Commercial Real Estate	$2.0 billion	(4)	(4)		(4)		(4)

__________________


(1)	Represents capital raised through NorthStar Income’s dividend reinvestment plan.

(2)


(3)	Offering period subject to extension as determined by NorthStar Income II’s board of directors.


(4)	Offering period will commence upon its registration statement being declared effective by the Securities and Exchange Commission, or the SEC.

NorthStar Realty committed to invest up to $10 million in each of our Sponsored Companies that are in their offering stage. In addition, consistent with its past practice, NorthStar Realty will commit up to $10 million for distribution support in any future non-traded company that we sponsor, up to a total of five new companies per year.

On March 31, 2014, NorthStar/RXR New York Metro Income, Inc., or NorthStar/RXR New York Metro, confidentially submitted its registration statement on Form S-11 to the SEC seeking to raise up to $2.0 billion in a public offering of common stock. NorthStar/RXR New York Metro will be structured as a public, non-traded corporation that intends to qualify as a REIT and is co-sponsored by us and RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate investments in the New York Tri-State area. Any asset management and other fees incurred by NorthStar/RXR New York Metro will be shared by us and RXR Realty as co-sponsors. NorthStar/RXR New York Metro intends to make commercial real estate investments in the New York metropolitan area. The distribution support agreement related to NorthStar/RXR New York Metro is an obligation of both NorthStar Realty and RXR Realty, where each agreed to purchase up to an aggregate of $10.0 million in Class A common stock during the two-year period following commencement of the offering, with NorthStar Realty and RXR Realty agreeing to purchase 75% and 25% of any shares purchased, respectively.

Other

In June 2014, we acquired a 50% interest in Distribution Finance Corporation, a crowd funding technology platform company, for $4 million. We account for this investment under the equity method. In addition to earning a proportionate share of net income, we will earn a net 0.50% fee on any syndicated investments, a minimum base management fee of 1% and an incentive fee of 15% on contractually defined excess cash flows.

Sources of Operating Revenues and Cash Flows

We primarily generate revenue from asset management, incentive and other fee income pursuant to contractual arrangements with our Sponsored Companies. We also generate revenue from commission income from selling equity in our Sponsored Companies. Effective July 1, 2014, we began generating revenue from asset management, incentive and other fee income from NorthStar Realty in addition to our Sponsored Companies. Additionally, we will record equity in earnings of unconsolidated ventures.

Profitability and Performance Metrics

We calculate several metrics to evaluate the profitability and performance of our business.


•	CAD is a non-GAAP measure that provides investors and management with a meaningful indicator of operating performance (refer to “Non-GAAP Financial Measures” for a description of this metric); and


•	Our ability to raise capital for our Managed Companies, which in turn grows the assets of our Managed Companies, is a driver of our ability to grow our fee income.

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Outlook and Recent Trends

The Great Recession, which officially lasted from December 2007 to June 2009, began with the bursting of an $8 trillion housing bubble and had a dramatic negative impact globally on properly functioning capital markets and liquidity across all asset classes. It was not until the beginning of 2012 that liquidity and capital started to become more available in the commercial real estate markets to stronger sponsors and both Wall Street and commercial banks began to more actively provide credit to real estate borrowers accelerating the pace of investment in real estate. In late 2012, in order to stimulate growth, several of the world’s largest central banks acted in a coordinated effort through massive injections of stimulus in the financial markets, which has facilitated keeping interest rates low.

A proxy for the liquidity in the commercial real estate market is non-agency CMBS issuance. Approximately $45 billion and $80 billion of non-agency CMBS was issued in 2012 and 2013, respectively, with industry experts currently predicting approximately $90 billion of non-agency CMBS issuance in 2014. The 2014 pace is higher than initially expected with $27 billion issued in the third quarter 2014, representing the highest quarterly issuance since the fourth quarter 2007.

Since mid-2013, there has been a focus on the pace at which the U.S. Federal Reserve and other sovereign national banks will taper their respective stimulus efforts. The U.S. economy appears to be on a relatively healthy growth path. However, there are concerns that slowdowns of major global economies could spill over into the United States. Slowing overseas growth and a move by the U.S. Federal Reserve to raise interest rates could result in increased market volatility through the end of the year.

Valuations in the commercial real estate markets are approaching, and in some cases exceeding, 2007 levels. However, global economic and political headwinds remain, that along with global market instability and the risk of maturing commercial real estate debt that may have difficulties being refinanced, may continue to cause periodic volatility in the CRE market for some time. It is currently estimated that approximately $1.4 trillion of commercial real estate debt will mature through 2017. While there is an increased supply of liquidity in the commercial real estate market, we still anticipate that certain of these loans will not be able to be refinanced, potentially inhibiting growth and contracting credit.

Virtually all commercial real estate property types were adversely impacted by the credit crisis and subsequent recession, while others such as land, condominium and other commercial property types were more severely impacted. The commercial real estate equity, debt and securities investments of our Managed Companies could be negatively impacted by weak real estate markets and economic conditions. While the U.S. economy is stronger today, a return to weak economic conditions in the future could reduce our Managed Companies’ tenant’s/operator’s/resident’s/guest’s ability to make payments in accordance with the contractual terms and for companies to lease or occupy new space. To the extent that market rental and occupancy rates are reduced, property-level cash flow could be negatively affected.

After showing considerable resiliency during the economic downturn between 2007 and 2010, the non-traded REIT industry has experienced rapid growth with approximately $20 billion of total capital raised in 2013, which is more than double compared to the year ended 2012. The recent trend in liquidity events and resulting recapture contributed to the significant market growth in 2013 and high volume of anticipated capital raised in 2014, including over $12 billion year to date through September 30, 2014. We anticipate capital flows to remain robust in 2015 given the recent momentum in the market. Due to these market dynamics and our expertise and industry relationships, we continue to see a robust pipeline of investment opportunities in the healthcare real estate sector that have credit qualities and yield profiles that are consistent with our underwriting standards and that we believe offer the opportunity to meet or exceed our targeted returns. While we remain optimistic that we will continue to be able to generate and capitalize on an attractive pipeline, there is no assurance that will be the case.

Financing Strategy

Our organizational documents do not limit our capacity to use leverage or the amount we may use. Our financing objective is to manage our capital structure effectively in order to provide sufficient capital to execute our business strategies and in turn add value to stockholders. We may borrow on a credit facility and from time to time use derivative instruments primarily to manage interest rate risk. We do not intend to use derivatives to speculate.

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Portfolio Management

Credit risk management is our ability to manage assets of our Managed Companies in a manner that preserves capital and income and minimizes losses that would decrease income and in turn may decrease certain of the fees we earn for managing these companies. Subsequent to the spin-off, the Company performs portfolio management on behalf of NorthStar Realty and the Sponsored Companies. We maintain a comprehensive portfolio management process that generally includes day-to-day oversight, weekly management meetings and an exhaustive quarterly credit review process designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. We use many methods to actively manage the assets of our Managed Companies such as frequent re-underwriting and dialogue with borrowers, tenants, operators and partners as well as inspections of collateral, modification to debt terms, taking title to collateral or selling assets when we can obtain a price that is attractive relative to its risk.

Critical Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of NorthStar Asset Management Group Inc. and its consolidated subsidiaries.

Variable Interest Entities

A variable interest entity, or VIE, is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

We reassess the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to our business activities and the other interests. We reassess the determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

We evaluate our Managed Companies, investments in unconsolidated ventures and securitization financing transactions to which we are the special servicer to determine whether they are a VIE.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party.

We perform on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

Non-controlling, unconsolidated ownership interests in an entity may be accounted for using the equity method, at fair value or the cost method.

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We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We record the change in fair value for our share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Estimates

The preparation of combined consolidated financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, requires management to make estimates and assumptions that could affect the amounts reported in the combined consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Revenue Recognition

Asset Management and Other Fees

Asset management and other fees include asset management, incentive and other fees, such as acquisition and disposition fees, earned from our Managed Companies. Base asset management and other fees are recognized based on contractual terms specified in the underlying governing documents in the periods during which the related services are performed and the amounts have been contractually earned. Incentive fees and payments are recognized subject to the achievement of return hurdles in accordance with the respective terms set forth in the governing documents of our Managed Company.

Selling Commission and Dealer Manager Fees and Commission Expense

Selling commission and dealer manager fees represents income earned by us for selling equity in our Sponsored Companies through NorthStar Securities. Selling commission and dealer manager fees and commission expense are accrued on a trade date basis.

Equity-Based Compensation

We account for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of fair value of the award at the time of grant. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, we recognize compensation expense over the vesting period on a straight-line basis. For awards with performance or market measures, we recognize compensation expense over the requisite service period, using the accelerated attribution expense method. For performance-based measures, we recognize compensation expense, net of estimated forfeitures, based on an estimate of the probable achievement of such measures. For market-based measures, we recognize compensation expense based on the initial estimate of the fair value of the award using a binomial model.

For awards with a combination of performance or market measures, we estimate the fair value as if it were two separate awards. First, we estimate the probability of achieving the performance measure. If it is not probable the performance condition will be met, we recognize the compensation expense based on the fair value of the market measure. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, we record compensation expense based on the performance-based measure. We would then record a cumulative catch-up adjustment for any additional compensation expense.

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Income Taxes

Certain of our subsidiaries were subject to taxation by federal, state and foreign authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income taxes represents the total of income taxes paid or payable for the current year, plus the change in deferred taxes during the year.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. When it becomes effective on January 1, 2017, the accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. We are in the process of evaluating the impact, if any, of the update on our consolidated financial statements and related disclosures.

Results of Operations

Comparison of the Three Months Ended September 30, 2014 to September 30, 2013 (Dollars in Thousands):

The consolidated financial statements for the three months ended September 30, 2014 represent our results of operations subsequent to the spin-off of NorthStar Realty’s historical asset management business of managing our Sponsored Companies, owning NorthStar Securities and operating the special servicing business. In connection with the spin-off, most of NorthStar Realty’s employees at the time of the spin-off became our employees. Executive officers, employees engaged in NorthStar Realty’s loan origination business at the time of the spin-off and certain other employees that became co-employees of both us and NorthStar Realty. Therefore, subsequent to June 30, 2014, we generally incur substantially all employee-related cash costs.

Periods prior to June 30, 2014 present a carve-out of NorthStar Realty’s historical financial information, including revenues and expenses allocated to us related to NorthStar Realty’s historical asset management business. Expenses also included an allocation of indirect expenses from NorthStar Realty, including salaries, equity-based compensation and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had NorthStar Realty’s historical asset management business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of NorthStar Realty’s operations. Additionally, periods prior to June 30, 2014 did not reflect the management agreement we entered into with NorthStar Realty effective July 1, 2014.

As a result, results of operations for the three months ended September 30, 2014 may not be comparative to our results of operations reported for the prior periods presented. The following table represents our results of operations for the three months ended September 30, 2014 and 2013 (dollars in thousands):



	Three Months Ended September 30,					Increase (Decrease)
	2014			2013		Amount			%
Revenues
Asset management and other fees, related parties	$	56,521		$	6,782	$	49,739		733.4	%
Selling commission and dealer manager fees, related parties	27,149			1,639		25,510			1,556.4	%
Other income	318			432		(114		)	(26.4	)%
Total revenues	83,988			8,853		75,135			848.7	%
Expenses
Commission expense	25,691			1,629		24,062			1,477.1	%
Other expense	747			27		720			2,666.7	%
General and administrative expenses
Salaries and related expense	9,670			3,424		6,246			182.4	%
Equity-based compensation expense	16,541			1,006		15,535			1,544.2	%
Other general and administrative expenses	6,508			1,149		5,359			466.4	%
Total general and administrative expenses	32,719			5,579		27,140			486.5	%
Total expenses	59,157			7,235		51,922			717.7	%
Income (loss) before income taxes	24,831			1,618		23,213			1,434.7	%
Income tax (expense) benefit	(6,087		)	—		(6,087		)	100.0	%
Net income (loss)	$	18,744		$	1,618	17,126			1,058.5	%

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Asset Management and Other Fees

Asset management and other fees are comprised of fees from our Managed Companies summarized as follows (dollars in thousands):



	Three Months Ended September 30,
	2014		2013
NorthStar Realty
Base fee	$	38,047	$	—
Incentive fee	1,316		—
Subtotal NorthStar Realty	39,363		—		⁽¹⁾
Sponsored Companies
Asset management fees	7,153		4,178		⁽²⁾
Acquisition fees	8,638		2,442		⁽³⁾
Disposition fees	1,367		162		⁽⁴⁾
Subtotal Sponsored Companies	17,158		6,782
Total	$	56,521	$	6,782

__________________


(1)	We began earning fees on July 1, 2014, in connection with the management agreement with NorthStar Realty.


(2)	The increase was driven by the growth in assets of our Sponsored Companies. As of September 30, 2014 and 2013, our Sponsored Companies held aggregate assets of $3.0 billion and $2.0 billion, respectively.


(3)	The increase was driven by increased investment activity of our Sponsored Companies. Also contributing to the increase are the higher fees earned from NorthStar Healthcare’s real estate equity investments made in the third quarter 2014.


(4)	The increase was driven by increased repayments of debt investments from NorthStar Income in the third quarter 2014.

Selling Commission and Dealer Manager Fees

We earn net commission income through NorthStar Securities for selling equity in our Sponsored Companies, which is expected to cover the costs incurred in connection with our broker-dealer business. Currently, net commission income covers the majority of such costs.

Selling commission and dealer manager fees represent fees earned for selling equity in our Sponsored Companies through NorthStar Securities. Pursuant to dealer manager agreements between NorthStar Securities and our Sponsored Companies, we generally receive selling commissions of up to 7% of gross offering proceeds raised, which we reallow to participating broker-dealers. In addition, we also generally receive a dealer manager fee of up to 3% of gross offering proceeds raised, a portion of which may be reallowed to participating broker-dealers and to employees of NorthStar Securities. Selling commission increased due to higher capital raising activity for the three months ended September 30, 2014 as compared to the same period in 2013.

The following table presents equity raised by our Sponsored Companies for the periods presented (dollars in thousands):



	Three Months Ended September 30,
	2014		2013
NorthStar Income	$	10,841	$	9,929	⁽¹⁾
NorthStar Healthcare	207,131		16,432		⁽²⁾
NorthStar Income II	72,669		2,200		⁽²⁾
Total	$	290,641	$	28,561

_________________


(1)	NorthStar Income successfully completed its public offering on July 1, 2013. Represents capital raised through NorthStar Income’s dividend reinvestment plan.


(2)	Capital raising pace at both NorthStar Healthcare and NorthStar Income II accelerated in 2014.

Other Income

Other income primarily represents special servicing fees related to certain securitization transactions and equity in earnings (loss) at the corporate level. We are a rated special servicer by Standard & Poor’s and Fitch Ratings and we receive special servicing fees for services related to certain securitization transactions. The decrease is primarily the result of less services performed in 2014.

Expenses

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Commission Expense

Commission expense represents fees to participating broker-dealers with whom we have selling agreements to raise capital for our Sponsored Companies and commissions to employees of NorthStar Securities. Commission income and expense both increased due to higher capital raising activity for the three months ended September 30, 2014 as compared to the same period in 2013.

Other Expense

Other expense primarily represents depreciation expense and foreign exchange gain (loss) at the corporate level.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level except as it relates to direct compensation expense and other costs incurred at our broker-dealer, which is part of our broker-dealer segment.

General and administrative expenses increased $27.1 million primarily attributable to the following:

Salaries and related expense increased $6.2 million primarily due to most employees of NorthStar Realty becoming our employees.

Equity-based compensation expense increased $15.5 million in connection with the spin-off as the prior period amount only represented an allocation of equity-based compensation expense related to NorthStar Realty’s historical asset management business. For the three ended September 30, 2013, we were allocated $1.0 million of equity-based compensation expense related to the NSAM Stock Plan and NorthStar Realty Equity Plans. For the three months ended September 30, 2014, we recognized $16.5 million of equity-based compensation related to the NSAM Stock Plan and NorthStar Realty Equity Plans.

Other general and administrative expenses increased $5.4 million in connection with the spin-off as the prior period amount only represented an allocation of other general and administrative expense related to NorthStar Realty’s historical asset management business.

Income Tax Benefit (Expense)

Effective July 1, 2014, we are subject to both domestic and international income tax. We recognized $6.1 million of income tax expense for the three months ended September 30, 2014.

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Comparison of the Nine Months Ended September 30, 2014 to September 30, 2013 (Dollars in Thousands):

The nine months ended September 30, 2014 includes: (i) our results of operations for the three months ended September 30, 2014 which represents the activity following the spin-off of NorthStar Realty’s historical asset management business on June 30, 2014 and (ii) our results of operations for the six months ended June 30, 2014, which represents a carve-out of revenues and expenses attributable to us. Our historical financial information for the nine months ended September 30, 2013 was prepared on the same basis as the six months ended June 30, 2014. The following table represents our results of operations for the nine months ended September 30, 2014 and 2013 (dollars in thousands):



	Nine Months Ended September 30,						Increase (Decrease)
	2014			2013			Amount			%
Revenues
Asset management and other fees, related parties	$	78,300		$	17,077		$	61,223		358.5	%
Selling commission and dealer manager fees, related parties	61,010			51,214			9,796			19.1	%
Other income	699			708			(9		)	(1.3	)%
Total revenues	140,009			68,999			71,010			102.9	%
Expenses
Commission expense	57,389			46,504			10,885			23.4	%
Transaction costs	24,476			—			24,476			100.0	%
Other expense	793			81			712			879.0	%
General and administrative expenses
Salaries and related expense	21,994			15,794			6,200			39.3	%
Equity-based compensation expense	30,286			4,513			25,773			571.1	%
Other general and administrative expenses	10,792			4,966			5,826			117.3	%
Total general and administrative expenses	63,072			25,273			37,799			149.6	%
Total expenses	145,730			71,858			73,872			102.8	%
Income (loss) before income taxes	(5,721		)	(2,859		)	(2,862		)	100.1	%
Income tax (expense) benefit	(6,087		)	$	—		(6,087		)	100.0	%
Net income (loss)	$	(11,808	)	$	(2,859	)	$	(8,949	)	313.0	%

Asset Management and Other Fees

Asset management and other fees are comprised of fees from our Managed Companies summarized as follows (dollars in thousands):



	Nine Months Ended September 30,
	2014		2013
NorthStar Realty
Base fee	$	38,047	$	—
Incentive fee	1,316		—
Subtotal NorthStar Realty	39,363		—		⁽¹⁾
Sponsored Companies
Asset management fees	18,713		9,086		⁽²⁾
Acquisition fees	18,050		7,790		⁽³⁾
Disposition fees	2,174		201		⁽⁴⁾
Subtotal Sponsored Companies	38,937		17,077
Total	$	78,300	$	17,077

__________________


(1)	We began earning fees on July 1, 2014, in connection with the management agreement with NorthStar Realty.


(2)	The increase was driven by the growth in assets of our Sponsored Companies. As of September 30, 2014 and 2013, our Sponsored Companies held aggregate assets of $3.0 billion and $2.0 billion, respectively.


(3)	The increase was driven by increased investment activity of our Sponsored Companies. Also contributing to the increase are the higher fees earned from NorthStar Healthcare’s real estate equity investments made in 2014.


(4)	The increase was driven by increased repayments of debt investments from NorthStar Income in 2014.

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Selling Commission and Dealer Manager Fees

Selling commission and dealer manager fees represent fees earned for selling equity in our Sponsored Companies through NorthStar Securities. Pursuant to dealer manager agreements between NorthStar Securities and our Sponsored Companies, we generally receive selling commissions of up to 7% of gross offering proceeds raised, which we reallow to participating broker-dealers. In addition, we also generally receive a dealer manager fee of up to 3% of gross offering proceeds raised, a portion of which may be reallowed to participating broker-dealers and to employees of NorthStar Securities. Selling commission increased due to higher capital raising activity for the nine months ended September 30, 2014 as compared to the same period in 2013.

The following table presents equity raised by our Sponsored Companies for the periods presented (dollars in thousands):



	Nine Months Ended September 30,
	2014		2013
NorthStar Income	$	31,802	$	535,214	⁽¹⁾
NorthStar Healthcare	443,095		19,069		⁽²⁾
NorthStar Income II	184,312		2,200		⁽²⁾
Total	$	659,209	$	556,483

_________________


(1)	NorthStar Income successfully completed its public offering on July 1, 2013. The nine months September 30, 2014 balance represents capital raised through NorthStar Income’s dividend reinvestment plan.


(2)	Capital raising pace at both NorthStar Healthcare and NorthStar Income II accelerated in 2014.

Other Income

Expenses

Commission Expense

Commission expense represents fees to participating broker-dealers with whom we have selling agreements to raise capital for our Sponsored Companies and commissions to employees of NorthStar Securities. Commission income and expense both increased due to higher capital raising activity for the nine months ended September 30, 2014 as compared to the same period in 2013.

Transaction Costs

Transaction costs represent costs such as legal, accounting, tax and other professional fees associated with the Distribution.

Other Expense

Other expense primarily represents depreciation expense and foreign exchange gain (loss) at the corporate level.

General and Administrative Expenses

General and administrative expenses increased $37.8 million primarily attributable to the following:

Salaries and related expense increased $6.2 million primarily due to most employees of NorthStar Realty becoming our employees.

Equity-based compensation expense increased $25.8 million in connection with the spin-off as the prior period amount only represented an allocation of equity-based compensation expense related to NorthStar Realty’s historical asset management

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business. For the three months ended September 30, 2014, we recognized $16.5 million of equity-based compensation related to the NSAM Stock Plan and NorthStar Realty Equity Plans. For the six months ended June 30, 2014, we were allocated $13.7 million of equity-based compensation expense related to the NSAM Stock Plan and NorthStar Realty Equity Plans. For the three and nine months ended September 30, 2013, we were allocated $1.0 million and $4.5 million, respectively, of equity-based compensation expense related to the NSAM Stock Plan and NorthStar Realty Equity Plans.

Other general and administrative expenses increased $5.8 million in connection with the spin-off as the prior period amount only represented an allocation of other general and administrative expense related to NorthStar Realty’s historical asset management business.

Income Tax Benefit (Expense)

Effective July 1, 2014, we are subject to both domestic and international income tax. We recognized $6.1 million of income tax expense for the nine months ended September 30, 2014.

Liquidity and Capital Resources

Our capital sources may include cash flows provided from operating activities, primarily from management fees and incentive income paid to us from our Managed Companies, borrowings and the issuance of common stock. Our primary uses of liquidity include operating expenses and distributions.

We expect that our cash flows from operating activities and available financing will be sufficient to satisfy our liquidity needs. As of September 30, 2014, we had a receivable, related parties balance primarily from our Managed Companies of $78.0 million, of which we received $55.1 million subsequent to September 30, 2014.

We currently believe that our existing sources of funds should be adequate for the purposes of meeting our short-term liquidity needs. Unrestricted cash as of November 6, 2014, was approximately $149.8 million.

Cash Flows

The following presents a summary of our combined consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 (dollars in thousands):



	Nine Months Ended September 30,
Cash flow provided by (used in):	2014			2013
Operating activities	$	(14,605	)	$	(4,864	)
Investing activities	(4,000		)	—
Financing activities	116,397			6,875
Effect of foreign exchange rate changes on cash	(310		)	—
Net increase (decrease) in cash	$	97,482		$	2,011

Nine Months Ended September 30, 2014 Compared to September 30, 2013

Net cash used in operating activities was $14.6 million for the nine months ended September 30, 2014 compared to $4.9 million for the nine months ended September 30, 2013. The increase was primarily due to asset management and other fees from our Sponsored Companies and NorthStar Realty, excluding $55.1 million of fees received subsequent to September 30, 2014, offset by operating expenses incurred to grow our business.

Net cash used in investing activities primarily represents the investment in crowd funding.

Net cash provided by financing activities was $116.4 million for nine months ended September 30, 2014 compared to $6.9 million for nine months ended September 30, 2013. The increase was primarily due to transactions with NorthStar Realty including the operating activities between us and NorthStar Realty and the initial capital contribution upon the Distribution.

Off-Balance Sheet Arrangements

We have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements. We have made investments in unconsolidated ventures. Refer to Note 4. “Investments in Unconsolidated Ventures” in Item 1. “Financial Statements” for a discussion of such unconsolidated ventures in our consolidated financial statements. Our exposure to loss is limited to the carrying value of our investment.

Related Party Arrangements

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NorthStar Realty

Investment Opportunities

Under the management agreement, NorthStar Realty agreed to make available to us for the benefit of our Managed Companies, including NorthStar Realty, all investment opportunities sourced by NorthStar Realty. We agreed to fairly allocate such opportunities among our Managed Companies, including NorthStar Realty, in accordance with an investment allocation policy. Pursuant to the management agreement, NorthStar Realty is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by it, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate.

We provide services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to NorthStar Realty as it relates to its loan origination business for commercial real estate debt.

Credit Agreement

In connection with the Distribution, we entered into a revolving credit agreement with NorthStar Realty pursuant to which NorthStar Realty will make available to us, on an “as available basis,” up to $250 million of financing for a five year term at LIBOR plus 3.50%. The revolving credit facility is unsecured. We expect to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, we may use the proceeds to acquire assets on behalf of our Managed Companies that it intends to allocate to such Managed Company but for which such Managed Company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that NorthStar Realty’s obligation to advance proceeds to us is dependent upon NorthStar Realty and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount we seeks to draw under the facility. As of September 30, 2014, we had no borrowings outstanding under the credit agreement.

Healthcare Strategic Joint Venture

In January 2014, we entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc. focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees and seeks to grow both NorthStar Realty’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, NorthStar Realty granted Mr. Flaherty certain RSUs. The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by NorthStar Realty and NorthStar Healthcare. The partnership will also be entitled to any incentive fees earned from NorthStar Healthcare or any future healthcare non-traded REITs sponsored by us, NorthStar Realty or any affiliates. For the three and nine months ended September 30, 2014, we did not earn any incentive fees related to the Healthcare Strategic Partnership.

Recent Developments

Dividends

On October 30, 2014, we declared a dividend of $0.10 per share of common stock. The common stock dividend will be paid on November 14, 2014 to stockholders of record as of the close of business on November 10, 2014.

American Healthcare Investors LLC

On November 7, 2014, we entered into an agreement to acquire an approximate 47% ownership interest in the business of American Healthcare Investors LLC, or AHI, for upfront cash and stock consideration of $57.5 million, consisting of $37.5 million of cash and $20 million of our common stock, subject to certain lock-up and vesting restrictions. Refer to Part II, Item 5: “Other” for further discussion. There can be no assurance that we will complete the transaction described above on the terms contemplated or at all.

Non-GAAP Financial Measure

Management views CAD as a performance measure as it provides investors and management with a meaningful indicator of operating performance. Management also uses CAD, among other measures, to evaluate profitability. In addition, the incentive fees to which we are entitled pursuant to our management agreement with NorthStar Realty are determined using

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NorthStar Realty’s CAD as a performance metric. We believe that CAD is useful because it adjusts net income (loss) for a variety of non-cash, one-time and certain non-recurring items.

We calculate CAD by subtracting from or adding to net income (loss): equity-based compensation, depreciation related items and straight-line rent, foreign currency gains (losses) and transaction and other costs. In future periods, such adjustments may include amortization of deferred financing costs, impairment on goodwill and other intangibles and other one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items. These items, if applicable, include any adjustments for unconsolidated ventures. Management also believes that quarterly distributions are principally based on operating performance and our board of directors includes CAD as one of several metrics it reviews to determine quarterly distributions to stockholders.

CAD should not be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD may differ from the methodologies used by other comparable companies when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

The following table presents a reconciliation of CAD to net income (loss) for the three months ended September 30, 2014 (dollars in thousands):



Net income (loss)	$	18,744
Adjustments:
Equity-based compensation	16,541
Other⁽¹⁾	747
CAD	$	36,032

________________


(1)	Includes $0.4 million of depreciation and amortization and $0.3 million of foreign currency related adjustments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is related to our role as asset manager to our Managed Companies and its effect on the asset management, incentive and other fees we earn. Our asset management, incentive and other fees are primarily driven by the ability of our existing and potential new Managed Companies to grow by raising capital, which will in turn be driven by their investment activities, overall performance and various factors beyond our control, including but not limited to, monetary and fiscal policies, domestic and international economic conditions and political considerations. The effect of such risks on our asset management, incentive and other fee agreements vary based on the management contract with the respective Managed Company (refer to the Note 3 for a summary of our management contracts with our current Managed Companies).

The NorthStar Realty management agreement consists of a base management fee which increases as equity is raised and an incentive fee which is based on the performance of NorthStar Realty using CAD as a performance metric. The base management fee currently represents the majority of the fee. The ability of NorthStar Realty to grow is dependent on access to the capital markets to raise equity and/or debt. To the extent that general capital markets activity slows down or comes to a halt (as was the case during the recession that began in 2008), NorthStar Realty may have difficulty growing. This risk is based on micro and macro-economic market factors including but not limited to disruptions in the debt and equity capital markets and institutional lending market, including the lack of access to capital or prohibitively high costs of obtaining or replacing capital. Despite recent improvements, the markets could suffer another severe downturn and another liquidity crisis could emerge.

Our Sponsored Companies’ ability to sell equity is highly dependent upon the market and the efforts of our broker-dealer, NorthStar Securities. The non-traded industry has experienced rapid growth, is highly competitive and has faced increased scrutiny in recent years. The number of entrants in the non-traded market space has grown significantly over the last several years and as a result, we are subject to significant competition from these and other companies seeking to raise capital in this market. Additionally, as a result of increased scrutiny and accompanying media attention, our non-traded companies may face increased difficulties in raising capital in their offerings due to market perception. This market perception may affect our ability to raise capital for our non-traded companies and make investments on their behalf, both of which could materially adversely affect our asset management, incentive and other fee income and the net commission income generated by our broker-dealer.

To a lesser extent, we are indirectly exposed to credit risk through the performance of our Managed Companies. Credit risk relates to the ability of the individual investments to perform, for example the ability for the borrowers’ underlying debt or securities investments to make required interest and principal payments on scheduled due dates. We seek to manage credit risk through a comprehensive credit analysis prior to making an investment, actively monitoring our portfolio and the underlying

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credit quality, including subordination and diversification of our portfolio. Our analysis is based on a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to the evaluation of credit risk inherent in a transaction.

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk is the risk that the financial results of our international real estate investments are materially impacted by fluctuations in foreign currency exchange rates. We may manage such risk through a combination of foreign currency derivative instruments and use non-U.S. denominated borrowings, where appropriate, associated with such investments.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in our periodic reports.

PART II. Other Information

Item 1. Legal Proceedings

We may be involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, any legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.

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Item 5. Other

American Healthcare Investors LLC

On November 5, 2014, NSAM and its subsidiary, Platform HealthCare Investor T-II, LLC, entered into a unit purchase agreement (the “Purchase Agreement”) with AHI and its affiliates, HC AHI Holding Company, LLC, AHI Newco, LLC, Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff, to acquire an approximate 47% ownership interest in the business of AHI. AHI is a healthcare-focused real estate investment management firm with over 60 real estate professionals and is a co-owner of Griffin-American Healthcare REIT Sub-Advisor, LLC, which is the external sub-advisor to Griffin-American Healthcare REIT II, Inc. (“Griffin-American”) and Griffin-American Healthcare REIT II Holdings, LP (“Griffin-American Operating Partnership”).

Pursuant to the Purchase Agreement, NSAM will purchase its interest in AHI Ventures (as defined below) from the principals of AHI for cash and stock consideration of approximately $57.5 million, consisting of $37.5 million of cash and $20.0 million of NSAM common stock (which stock is subject to certain lock-up and vesting restrictions). The stock consideration will be calculated based on the ten day volume weighted average price of NSAM’s common stock for the ten trading day period ending on the closing of the second to last trading day prior to the closing date. In addition, during the five year period following the closing, NSAM may be required to issue up to $15 million (but not to exceed $3 million in any one year) in additional shares of NSAM common stock to the principals of AHI if AHI Ventures achieves certain performance criteria. The issuance of NSAM common stock in these transactions will be exempt from registration as these transactions will not involve a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act. In addition, AHI and each of Messrs. Hanson, Prosky and Streiff represented that they are an accredited investor within the meaning of Rule 501 of Regulation D. Further, NSAM will contribute $2 million in shares of common stock to an equity incentive plan for the benefit of certain AHI Ventures employees.

Following the acquisition by NSAM, NSAM’s investment will be structured as a joint venture (“AHI Ventures”), with the principals of AHI (owning approximately 49%) and Mr. James F. Flaherty III, one of NSAM’s partners (owning approximately 5%). The transaction is anticipated to close shortly following the closing of NorthStar Realty’s merger with Griffin-American (the “merger”) pursuant to the agreement and plan of merger, dated as of August 5, 2014 (the “merger agreement”), by and among NorthStar Realty, NRF Healthcare Subsidiary, LLC (“Merger Sub”), NRF OP Healthcare Subsidiary, LLC (“Partnership Merger Sub”), Griffin-American and Griffin-American Operating Partnership. AHI Ventures will also issue a warrant to Mr. Flaherty that will permit him at any time during the five year period after the closing to invest up to an additional $5 million in AHI Ventures at a valuation 27% higher than the initial valuation. Mr. Flaherty will also be granted a 5% profits interest that would entitle him to receive 5% of capital proceeds of AHI Ventures after a return of capital to the initial investors (NSAM and the principals of AHI) and current cash flow distributions. At the closing of the transaction, the parties will enter into an amended and restated limited liability company agreement of AHI Ventures (the “LLC Agreement”) which will provide for the organizational, economic and governance arrangements of the joint venture and the rights and obligations of each of the joint venture members.

The members of AHI Ventures will also be entitled to receive certain promote fees based on the allocations set forth in the LLC Agreement. In addition, for every $1.0 billion of new equity capital raised through future AHI Ventures sponsored non-traded REITs, Mr. Flaherty will be entitled to receive an additional 150,000 shares of NSAM common stock (subject to customary adjustments), if and when at least 25% ($250 million) of such new equity capital raised has been invested by such AHI Ventures sponsored non-traded vehicle(s).

As part of this transaction, AHI Ventures will provide certain asset management, property management and/or other services to NSAM to assist NSAM in managing the existing healthcare assets (excluding any joint venture assets) of NorthStar Realty, inclusive of the assets of Griffin-American and the Griffin-American Operating Partnership portfolio following the closing of the merger. AHI Ventures will also provide management services to NSAM to assist NSAM in managing the future healthcare assets (excluding joint venture assets) acquired by NorthStar Realty and, subject to certain conditions, other managed companies. AHI Ventures will receive a base management fee of $600,000 per year plus 0.50% of the equity invested by NorthStar Realty in future assets (excluding the Griffin-American Operating Partnership portfolio) that AHI Ventures may manage. AHI Ventures would be entitled to additional base management fees should it manage assets on behalf of any other managed companies advised by NSAM. AHI Ventures also intends to directly or indirectly sponsor, co-sponsor, form, register, market, advise, manage and/or operate investment vehicles that are intended to invest primarily in healthcare real estate assets.

In addition, in connection with the closing, Messrs. Hanson, Prosky and Streiff, who are principals of AHI as well as directors and/or officers of Griffin-American, will each enter into employment agreements with AHI Ventures setting forth the terms and

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conditions of their employment by AHI Ventures. Each of Messrs. Hanson, Prosky and Streiff will also enter into non-competition and non-solicitation agreements with AHI Ventures containing restrictive covenants applicable to them under certain circumstances.

The completion of the acquisition of NSAM’s interest in AHI Ventures and the closing of the joint venture transaction is subject to a number of closing conditions, including the consummation of the merger, which is subject to a number of its own closing conditions, including (i) approval by the stockholders of NorthStar Realty and Griffin-American, (ii) the absence of any law, order or injunction prohibiting the merger, (iii) the accuracy of the representations and warranties (subject to customary materiality qualifiers) of each party to the merger agreement and the absence of any change, effect, development, circumstance or event from the date of the merger agreement until the effective time of the merger, that has had or is reasonably likely to have a material adverse effect on the other party, excluding in each case matters disclosed in any reports filed by NorthStar Realty or Griffin-American with the Securities and Exchange Commission prior to the date of the merger agreement or contained in the confidential disclosure letter delivered by NorthStar Realty or Griffin-American to the other party, (iv) the compliance of each party to the merger agreement with its covenants and agreements contained in the merger agreement (subject to customary materiality qualifiers) and (v) the receipt of customary legal opinions. We expect the merger and NSAM’s acquisition of an ownership interest in AHI Ventures to both close in December 2014. However, there is no assurance that the merger or NSAM’s acquisition of an ownership interest in AHI Ventures will close on the anticipated terms, or at all.

The foregoing description of the Purchase Agreement and the LLC Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement and the LLC Agreement, filed as Exhibit 10.19 to this Form 10-Q and incorporated by reference herein.

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Item 6. Exhibits



Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 4.1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form S-8 (File No. 333-197104))
3.2		Amended and Restated Bylaws of NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 4.2 to NorthStar Asset Management Group Inc.’s Registration Statement on Form S-8 (File No. 333-197104))
10.1		Asset Management Agreement, dated as of June 30, 2014, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.2		Separation Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.2 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.3		Contribution Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.4		Loan Origination Services Agreement, dated as of June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.5		Tax Disaffiliation Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.6		Employee Matters Agreement, dated as of June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.6 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.7		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J-NSI Ltd, NorthStar Real Estate Income Trust, Inc., NorthStar Real Estate Income Trust Operating Partnership, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.7 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.8		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J-NSHC Ltd, NorthStar Healthcare Income, Inc., NorthStar Healthcare Income Operating Partnership, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.8 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.9		Advisory Agreement, dated as of June 30, 2014, by and among NSAM J- NSII Ltd, NorthStar Real Estate Income II, Inc., NorthStar Real Estate Income Operating Partnership II, LP and NorthStar Asset Management Group Inc. (incorporated by reference to Exhibit 10.9 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.10		Credit Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.10 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.11†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and David T. Hamamoto (incorporated by reference to Exhibit 10.11 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.12†		Executive Employment Agreement and Agreement with Foreign Executive Officer, dated as of June 30, 2014, by and between NorthStar Asset Management Group, Ltd and Daniel R. Gilbert (incorporated by reference to Exhibit 10.12 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.13†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and Albert Tylis (incorporated by reference to Exhibit 10.13 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.14†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and Debra A. Hess (incorporated by reference to Exhibit 10.14 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.15†		Executive Employment Agreement, dated as of June 30, 2014, by and between NorthStar Asset Management Group Inc. and Ronald J. Lieberman (incorporated by reference to Exhibit 10.15 to NorthStar Asset Management Group Inc.’s Current Report on Form 8-K filed July 1, 2014)
10.16†		NorthStar Asset Management Group Inc. 2014 Omnibus Stock Incentive Plan. (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301))
10.17†		NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan. (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301)).
10.18†		Form of Indemnification Agreement between NorthStar Asset Management Group Inc. and its directors and officers (incorporated by reference to Exhibit 10.20 to Amendment No. 3 to NorthStar Asset Management Group Inc.’s Registration Statement on Form 10 (File No. 001-36301))
10.19**		Unit Purchase Agreement, dated as of November 5, 2014, by and among American Healthcare Investors LLC, HC AHI Holding Company, LLC, AHI Newco, LLC, Platform HealthCare Investor T-II, LLC, NorthStar Asset Management Group Inc. and Jeffrey T. Hanson, Danny Prosky and Mathieu B. Streiff, and Form of Amended and Restated Limited Liability Company Agreement of AHI Newco, LLC
31.1**		Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**		Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Exhibit No.		Description
101**		The following materials from the NorthStar Asset Management Group Inc. Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Combined Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013; (ii) Combined Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2014 and 2013; (iii) Combined Consolidated Statements of Equity for the nine months ended September 30, 2014 (unaudited) and year ended December 31, 2013; (iv) Combined Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2014 and 2013; and (v) Notes to Consolidated Financial Statements (unaudited)


†	Denotes a management contract or compensatory plan or arrangement.


**	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:



		NORTHSTAR ASSET MANAGEMENT GROUP INC.

Date:	November 10, 2014	By:	/s/ DAVID T. HAMAMOTO
				David T. Hamamoto
				Chairman and Chief Executive Officer

		By:	/s/ DEBRA A. HESS
				Debra A. Hess
				Chief Financial Officer

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